Middle East war depresses global growth

In early July 2026 the IMF cut its global‑growth forecast for the year to 3 % from 3.1 %, citing a lingering energy shock from the Middle‑East war and a technology‑driven AI investment boom. It assumed the Strait of Hormuz would reopen by mid‑July and projected oil near $89 a barrel, noting higher energy costs would strain import‑dependent economies while AI demand could temper the slowdown.

Two weeks later the World Bank’s chief economist warned that the escalating United‑States‑Iran conflict could depress global growth to around 1.3 % in 2026 and lift worldwide inflation to roughly 4.5 %, with damage to oil infrastructure and Red‑Sea blockades threatening energy and food supplies. He described the outlook as a “slow‑moving train‑wreck” for low‑ and middle‑income countries already in debt distress, emphasizing that AI’s longer‑term productivity gains would offer limited short‑term relief.

By late July, the warning was sharpened as Brent crude rose above US$100 a barrel, pushing U.S. Treasury yields to about 4.7 %—their highest since early 2025. Higher yields strained equity markets, with the S&P 500 heading toward its biggest monthly decline, while bond yields climbed in the United Kingdom and Germany. In Brazil, the oil‑price surge lifted the local currency and raised futures rates; Bitcoin slipped roughly 1.5 % to around US$64,800. The combined oil‑price shock and rising inflation expectations are forcing central banks to consider prolonged higher‑interest‑rate policies, increasing debt‑servicing costs for vulnerable economies and risking cuts to health and education spending.